eb41ea9a4fdfe539d1afd2.pdf
HAWKLEY OIL AND GAS LIMITED ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED 30 JUNE 2015
HAWKLEY OIL AND GAS LIMITED FOR THE YEAR ENDED 30 JUNE 2015
CONTENTS
FINANCIAL STATEMENTS
PAGE
DIRECTORS' REPORT 1
AUDITOR'S INDEPENDENCE DECLARATION 17
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 18
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 19
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 20
CONSOLIDATED STATEMENT OF CASH FLOWS 22
NOTES TO THE FINANCIAL STATEMENTS 23
DIRECTORS' DECLARATION 67
INDEPENDENT AUDIT REPORT 68
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
Your directors present their report for the financial year ended 30 June 2015.
DIRECTORS
The names of the directors in office at any time during, or since the end of, the year are:
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NAMES
Mr Glenn Featherby
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POSITION
Executive Chairman
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APPOINTED/RESIGNED
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Mr Bill Foster
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Non-Executive Director
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Mr Anthony Reilly
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Non-Executive Director
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Appointed 14 October 2014
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Mr Richard Reavley
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Chief Executive Officer and Executive Director
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Resigned 14 October 2014
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Lord Richard Risby
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Non-Executive Director
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Resigned 14 October 2014
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Mr Graham Lyon
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Non-Executive Director
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Resigned 14 October 2014
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Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.
COMPANY SECRETARY
Mr Murray Wylie was appointed on 3 May 2013. He has more than 30 years' experience in administrative and accounting roles in both the public and private sectors. Mr Wylie holds a Bachelor of Commerce degree and is a member of the Governance Institute of Australia. He also holds the position of Company Secretary with two other listed companies.
PRINCIPAL ACTIVITIES
The following principal activities occurred during the financial year:
OPERATING RESULTS AND REVIEW OF OPERATIONS FOR THE YEAR
The consolidated loss of the Group for the financial year after providing for income tax amounted to $15,881,750 (2014: $23,535,043).
Further discussion on the Group's operations now follows.
SOROCHYNSKA LICENCE
In November 2014, the Sorochynska 201 well in Ukraine experienced a sudden significant decrease in production. Investigations identified that the change in performance was due to water influx. Production ceased during December whilst investigations into possible remedies continued.
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
OPERATING RESULTS AND REVIEW OF OPERATIONS FOR THE YEAR (CONTINUED)
Additional compression equipment was installed and commissioned in March 2015 in an effort to resume production. Testing and commissioning of the additional equipment was carried out successfully, however the gas volume and pressure at the inlet was not sufficient for the compressor to continue operation.
The well is currently closed with monitoring indicating that the gas pressure is increasing due to gas inflow. The situation will continue to be monitored with the possibility of a further attempt to restart production in the near term if gas pressure increases sufficiently.
From July 2014 until production halted in December 2014, production from the Sorochynska 201 well totaled
0.30 Bcf gas and 5,889 Bbls condensate. Since the well commenced production in February 2011, cumulative production was 5.63 Bcf and 172,887 Bbls of gas and condensate respectively.
CHERNETSKA LICENCE
The Chernetskaya licence covers 47 km2 and is located approximately 300km north east of Kiev in the Talalayvskiy district of the Chernigiv region of Ukraine, about 2km to the southeast of the village of Chernetska, in the northwestern part of the Dnieper-Donets Basin. Technical evaluation of seismic data and testing from the Chernetska-1 well on the Chernetskaya licence has been completed. The timing and extent of further exploration is subject to an improvement in the Company's current financial position and the results of farm-out discussions.
STOLIAROVSKA LICENCE
In March 2013, Hawkley commenced funding of activities on the 20 year Stolyarivska Production Licence. The licence which covers an area of some 47 km2 is located approximately 25 km east-southeast of Romny in Sum'ska Oblast, 225 km east of Kyiv.
The licence is covered with a relatively close spaced irregular grid of mixed vintage 2D seismic lines. In 2013 Ukrgeofizika was contracted to reprocess and reinterpret the 2D seismic data set. Ukrgeofizika's reprocessing and interpretation report was received in December 2013 and has been reviewed by Hawkley's technical team. The timing and extent of further exploration is subject to an improvement in the Company's current financial position and the results of farm-out discussions.
GEOPOLITICAL EVENTS
Hawkley's operations have not been directly impacted by the geo-political conflict between Ukraine and Russia. The Kiev office remains open and fully functional with all staff remaining safe and continuing in their respective roles.
The Ukrainian National Bank has implemented temporary capital controls to limit withdrawals from the country's banking system. The Company has extended cost control measures to minimise the impact. The situation in Ukraine has impacted the Ukrainian currency however this is somewhat mitigated by the fact that gas and liquids prices are denominated in US dollars.
In August 2014, the Ukrainian Government passed emergency budget legislation to significantly increase production taxes for independent oil and gas companies from August 1st. The royalty rates for gas were approximately doubled to 55%. This increase was an emergency budget measure and royalty rates were supposed to revert to previous levels from 1 January 2015, however this has not yet occurred and is a significant factor in assessing the economic prospects of potential well workovers.
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
OPERATING RESULTS AND REVIEW OF OPERATIONS FOR THE YEAR (CONTINUED)
NEW VENTURES
The Company is considering options to diversify to reduce its geopolitical and product risk, leading to the announcement on 14 October 2014 of the proposed sale of its Ukraine assets to Black Star Petroleum Limited ('BlackStar'), subject to due diligence and shareholder and regulatory approvals. However BlackStar withdrew from the sale agreement on 24 November 2014.
Hawkley's strategy to maximize value from its existing Ukraine assets remains in place, and potential farm-in and joint venture options are being pursued. The Company also continues to pursue opportunities in other regions that meet Hawkley's criteria and do not require significant acquisition capital to be raised. Hawkley is in discussion with a number of parties regarding potential corporate and joint venture opportunities and will advise the market of any developments in due course.
DIVIDENDS PAID OR RECOMMENDED
No dividends were paid or declared since the start of the financial year. No recommendation for payment of dividends has been made.
FINANCIAL POSITION
The net assets of the Group have decreased by $8,379,314 from 30 June 2014 to a net liability position of
$806,170 at 30 June 2015. The decrease has largely resulted from the following factors:
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Impairment of significant exploration and evaluation assets including Chernetska -1 well;
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Impairment of the Sorochynska cash generating unit;
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A halt in gas and condensate production in Ukraine; and
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Unfavorable movements in foreign exchange rates.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
Closure of the London office and restructure of the Board occurred in October 2014. Production from Sorochynska 201 well stopped in December 2014. No other significant changes in the Group's state of affairs occurred during the financial year.
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
EVENTS SUBSEQUENT TO BALANCE DATE
No matters or circumstances have arisen since the end of the financial year which significantly affected or could significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years.
FUTURE DEVELOPMENTS
The likely developments in the operations of the Group and the expected results of those operations in future financial years are subject to successfully completing a farm-in or joint venture arrangement to continue oil and gas exploration and production in Ukraine or entering into a new corporate transaction.
ENVIRONMENTAL ISSUES
The Group's operations are not regulated by any significant environmental regulations under a law of the Commonwealth or of a state or territory.
INFORMATION ON DIRECTORS
Mr Glenn Featherby Executive Chairman
Experience Mr Featherby has over 30 years' experience in corporate advisory work and has worked extensively in the resources sector. He worked with KPMG in Perth and London before establishing his own accounting practice in Perth in 1997. Mr Featherby is Chairman of Forte Energy NL, listed on the AIM market. He has previously been Finance Director of AIM-listed Regal Petroleum Plc and
Non-Executive Director of Canadian and AIM-listed European Goldfields Limited.
Interest in Shares and Options
Directorships held in other listed entities during the three years prior to the current year
26,239,377 ordinary shares
Forte Energy Limited Patagonia Gold Plc
Ochre Group Holdings Limited
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
INFORMATION ON DIRECTORS (CONTINUED)
Mr Bill Foster Non-Executive Director
Experience Mr Foster is an engineer with extensive technical, commercial and managerial experience in the energy industry over a 40 year period. He has been an advisor to a major Japanese trading company for the last 20 years in the development of their global E&P and LNG activities and has spent time prior to this working internationally in the development of a number of energy companies.
Interest in Shares and Options
Directorships held in other listed entities during the three years prior to the current year
2,000,000 options exercisable at 10 cents expiring on or before 30 September 2018.
Carnarvon Petroleum Limited
Special duties Audit committee (Chair), remuneration committee
Mr Anthony Reilly Non-Executive Director (appointed 14 October 2014)
Experience Mr Reilly has over 20 years experience in financial markets, financial risk management and corporate finance. Working in investment banking, his clients have included a number of global corporations and fund managers based in Australia, the UK and Europe. He is presently Executive Director of ASX-listed Paradigm Metals and a Non-Executive Director of ASX-listed Venturex Resources.
Interest in Shares and Options
Directorships held in other listed entities during the three years prior to the current year
Nil.
Paradigm Metals Limited Venturex Resources Limited
Special duties Remuneration committee (Chair), audit committee
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
INFORMATION ON DIRECTORS (CONTINUED)
Mr Richard Reavley Chief Executive Officer and Executive Director
(resigned 14 October 2014)
Experience Mr Reavley has over 10 years experience working in London's financial sector and the natural resource industry. A founding member of Janita Global Limited, Mr Reavley was appointed Managing Director in January 2007. Mr Reavley has relevant experience managing oil and gas assets in Europe and Central Asia. He has public company experience as a former director of Goldbelt Resources Ltd, a TSX listed company. Mr Reavley has a BSc in Chemistry from the University of Kent and an MBA (Finance) from London Business School.
Interest in Shares and options
Directorships held in other listed entities during the three years prior to the current year
12,760,410 ordinary shares. Nil
Lord Richard Risby Non-Executive Director (resigned 14 October 2014)
Experience Lord Risby has over 20 years experience in the financial services sector. Previously of Merrill Lynch, E F Hutton International Associates, Lehman Brothers and Furman Selz, Lord Risby had a variety of director positions covering a comprehensive range of investment services to institutional clients. Lord Risby has been the Chairman of the British Ukrainian Society for 5 years and was appointed to the House of Lords in November 2010.
Interest in Shares and Options
Directorships held in other listed entities during the three years prior to the current year
Nil Nil
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
INFORMATION ON DIRECTORS (CONTINUED)
Mr Graham Lyon Non-Executive Director (resigned 14 October 2014)
Experience Mr Graham Lyon has over 30 years of experience in the oil and gas industry, working for a wide range of listed and private companies. Graham has a BSc Eng (Hons) in Petroleum Engineering from Imperial College London. He started his career with Chevron before moving to Shell as sub surface team leader and as project petroleum engineer. Graham then spent 14 years with Deminex in a series of technical leadership roles in the UK, Germany and Egypt, and its successor, Veba Oil and Gas, including Regional Manager for the Caspian and Middle East, thereafter he was heavily involved with the sale of the company to Petro-Canada. Graham remained with Petro-Canada for a further 7 years holding roles culminating in Vice President Strategy and Business Development, International and Offshore. Within the last 5 years Graham has held the position of President and Chief Executive Officer of Mena Hydrocarbons Inc, a TSX-V listed energy company, with assets in Egypt and Syria and is currently a Non-Executive Director at Range Resources Ltd, an AIM and ASX listed energy company, and a Director at Tarbagatay Munay LLP a private Kazakhstani oil and gas company and Soncer Ltd
Interest in Shares and Options
Directorships held in other listed entities during the three years prior to the current year
Nil
Mena Hydrocarbons Inc Range Resources Limited
MEETINGS OF DIRECTORS
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DIRECTORS' MEETINGS
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REMUNERATION COMMITTEE
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AUDIT COMMITTEE
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RESERVES COMMITTEE
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During the financial year, 5 meetings of directors (including committees of directors) were held. Attendances by each director during the year were as follows:
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NUMBER ELIGIBLE TO ATTEND
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NUMBER ATTENDED
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NUMBER NUMBER NUMBER ELIGIBLE ATTENDED ELIGIBLE TO TO
ATTEND ATTEND
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NUMBER ATTENDED
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NUMBER
ELIGIBLE TO NUMBER ATTEND ATTENDED
|
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Mr Glenn Featherby
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5
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5
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- - 1
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1
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- -
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Mr Bill Foster
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5
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5
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- - 1
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1
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- -
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Mr Anthony Reilly
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2
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2
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- - -
|
-
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- -
|
|
Mr Richard Reavley
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3
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3
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- - -
|
-
|
- -
|
|
Lord Richard Risby
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3
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2
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- - 1
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1
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- -
|
|
Mr Graham Lyon
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3
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3
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- - -
|
-
|
- -
|
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
INDEMNIFYING OFFICERS OR AUDITORS
The Group has not entered into any insurance contracts for the indemnification of Directors and Officers of the Company.
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement, against claims made by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the end of the financial year.
OPTIONS/PERFORMANCE RIGHTS
At the date of this report, there are 11,000,000 unissued ordinary shares of Hawkley Oil and Gas Limited under option.
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GRANT DATE
17 January 2014
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DATE OF EXPIRY
30 September 2018
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EXERCISE PRICE
0.10
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NUMBER UNDER OPTION
9,000,000
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27 December 2013
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30 September 2018
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0.10
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2,000,000
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11,000,000
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During the year ended 30 June 2015, 1,000,000 ordinary shares of Hawkley Oil and Gas Limited were issued on the exercise of performance rights. There were no ordinary shares of Hawkley Oil and Gas Limited issued on the exercise of options.
PROCEEDINGS ON BEHALF OF COMPANY
No person has applied for leave of Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings.
The Group was not a party to any such proceedings during the financial year.
NON-AUDIT SERVICES
The Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the financial year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor's independence for the following reasons:
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all non-audit services are reviewed and approved by the board prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and
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the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
NON-AUDIT SERVICES (CONTINUED)
The following fees were paid to the external auditors during the year ended 30 June 2015:
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2015
$
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2014
$
|
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43,723
|
111,191
|
|
43,723
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111,191
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Auditing or reviewing the financial report
AUDITOR'S INDEPENDENCE DECLARATION
The auditor's independence declaration for the year ended 30 June 2015 has been received and can be found on page 17 of the financial report.
HAWKLEY OIL AND GAS LIMITED DIRECTORS' REPORT
30 JUNE 2015
REMUNERATION REPORT (AUDITED) REMUNERATION POLICY
The performance of the Group depends upon the quality of its Directors and other key management personnel.
The Group's broad remuneration policy is to ensure the remuneration package properly reflects the person's duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people of the highest quality.
Remuneration Committee
The Board of Directors is responsible for determining and reviewing compensation arrangements for the Executive Directors and the senior management team.
The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments (including option allocations) of such Officers on a periodic basis by reference to the relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and key management personnel.
Executive Remuneration Structure
To assist in achieving these objectives, the Remuneration Committee links the nature and amount of Executive Directors' and Officers' emoluments (including option allocations) to the Group's financial and operational performance. All Directors and other key management personnel will have the opportunity to qualify for participation in the Employee Share Option Plan.
Fixed Remuneration
The level of fixed remuneration is set so as to provide a base level of remuneration, which is both appropriate to the position and is competitive in the market.
Fixed remuneration is reviewed annually by the Remuneration Committee and the process consists of a review of Company-wide, business unit and individual performance, relevant comparative remuneration in the market and internal and, where appropriate, external advice on policies and practices.
Senior executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and additional superannuation, which is provided by salary sacrifice. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Group.
Variable Remuneration - Long Term Incentive (LTI)
The LTI plan aims to reward executives in a manner which aligns this element of remuneration with the creation of shareholder wealth. There are no performance criteria for the grant of options, but rather are at the discretion of the Board.
As such, LTI grants are only made to executives who are able to influence the generation of shareholder wealth and thus have a direct impact on the Group's performance. LTI grants to executives are delivered in the form of options or rights.